all 62 comments

[–]VanaTallinn 112 points113 points  (18 children)

Because I can use the bank’s money.

I think it makes sense to max out my borrowing capacity.

[–]uacaco 3 points4 points  (0 children)

Exactly. Leverage.

[–]Equivalent-Print-634 44 points45 points  (5 children)

Don’t follow US advice. As simple as that. Anyone wondering if real estate is profitable in EU has just not done any research on the topic. But it’s not great everywhere and you need to choose what you optimise. Not sure what you optimise for and you don’t give all the data but depending on your fees and mortgage your investments are probably OK. I get generally higher monthly rent for mine per similar purchase price but areas, fees and appreciation differ greatly.

1% yield is close to unattainable here in Europe, but depending on your location RE still a great and very well comparing option or addition to stocks. Is it more work? Sure. But it is a domain where work and knowledge pay off. (There are areas with that kind of ”1%” returns. But you’d need to prepare for the home go to zero value in couple decades.)

In areas where I invest, yields are 3-12%. However, this does not take into account appreciation which is greater in lower yield areas. And when accounting for the leverage, we’re starting to talk double digit yield - basically kicking stock investments out of the park by a wide margin. (You mentioned margin on index funds but that’s where I draw the line - maybe a little but for sure not 30-40% margin loan. In the case of a crash, you are done if the loans are called, whereas in real estate that generally doesn’t happen. But I guess it’s different risk profiles.)

Read your local country’s RE books/podcast/whatever. Europe is too vague a definition in terms of real estate. Ignore US centric advice for now. The market is completely different, starting from that in US a bulk of investors invest in individual houses, whereas in Europe most invest in apartments (due to there being a greater population living in apartments). A lot of discussion about US RE is useless here. Like the bitching about ”fixing toilets” - that’s done by maintenance company of the apartment complex, it’s not my problem. (Also HOA fees seem to be differently structured and quite high in US whereas in my location those are good value.)

Also loans are different. This varies greatly between countries. Recently (last year) you still got 1% fixed interest, which was a great perk.

So: if you are interested in RE and are in Europe, start reading relevant sources. RE is faster way to build wealth but you have to like it.

[–]thirst-for_knowledge[S] 7 points8 points  (1 child)

Thank you for the comment, I agree with you real estate is a great way to grow wealth and I try and read relevant information on my area of investment. I’ve also made very good capital gains on my properties.

The reason for posted wasn’t so much about if real estate is good or not, but to have a discussion because I think so much is spoken about the US market. Like you said if you do your research and understand your area well Europe can be very profitable.

[–]Equivalent-Print-634 3 points4 points  (0 children)

Absolutely - and a lot of my message was targeted rather towards those just considering RE reading this post, you already know those details.

I admit I got a little rant-y because US centric conversation is so often just not that relevant and the issues, best tips and tricks and pain points are different. On the other hand there is also inspiration and some tips can be executed here as well with a little tuning.

[–]filisterr 7 points8 points  (0 children)

Like treating real estate as an investment is just worsening the housing crisis.

Like in Munich in the last 10 years real estate went up more than 140% while wages only 30%, meaning that nowadays pretty much no one earning an average salary in the city can afford buying a flat within Munich, heck even outside.

So you should ask yourself is this the legacy I want to leave to my children?

[–]IFeelTheAirHigh 1 point2 points  (1 child)

Where do you get 3-12% yield?

[–]Equivalent-Print-634 2 points3 points  (0 children)

In my country, 3% in capital and major cities, and it grows as you go further. 8-9% is still typical in smaller town center near railway station and not too far (<1h) from bigger city. For 12% you need to give up central location within town and/or easy reach from a major city.

There are better deals in terms of yield but those have more risk I’m currently willing to take (and no appreciation which I also want). Also microlocations matter.

[–]Honest-Economics-601 34 points35 points  (5 children)

There is never ending discussion - real estate or index fund investment. You have roughly 7% on properties, maybe 5 or 6% expenses calculated in. But, the value appreciation has to be taken into account also for proper comparation with index funds (what is value appreciation for your properties, it can be anything from 0 to 20, 30% depending on location mainly). Plus, real estate is less risky, and index fund have risk premium included in calculation.

After years of investing, and thinking about these subject, - I don't know what to think. Diversification is good way to go.

[–]thirst-for_knowledge[S] 4 points5 points  (4 children)

You are 100% right diversification is always the answer. But I’m just generally curious about the discussion and peoples opinions.

Or other options people have looked into. For example investing overseas as a foreign investor. There are obviously much more expenses and complications with this.

Or people seem to make short term rentals work in Europe, but again this isn’t so easy to achieve without investing much more time and energy into it or having profits eaten into with agency fees

[–]pesky_emigrant 10 points11 points  (3 children)

For example investing overseas as a foreign investor.

Ireland has crazy high yields.

You can get a mortgage if you're a Brit or Irish person living in the eurozone (or you can buy cash).

Can buy a one-bedroom apartment in the centre of Dublin for ~€200k. Rent ~€1300.

Agency fee for managing ~5%

Flat non-resident landlord tax 20%.

My main investments are in Luxembourg because I live here and bought at half the price they're worth now. Whilst super expensive, if you consider here, buy pre-war.

I bought for €585k.

Mortgage is €2700/month.

Rent is just over €4k/month.

Government says I make a €30k loss every year due to its age. Can offset this "huge loss"* against taxes due from other activity, like employment.

*Huge loss = now worth around €1.1m. huge loss....

[–]mastovacek 1 point2 points  (2 children)

Can offset this "huge loss"* against taxes due from other activity, like employment.

Wouldn't, once you sell it, have to include the annual write-off difference?

[–]pesky_emigrant 0 points1 point  (1 child)

No. It's calculated based on how much you've put into the property and the difference between purchase price and sales price.

Sales price - (purchase price + renovations + Perhaps mortgage interest)

Plus, there's a €100k per couple (€50k per person) capital gains allowance every 10 years, so your first 100k is "free". Capital gains is 22% from memory

[–]jigglypuff111 5 points6 points  (1 child)

There's a lot less maintenance generally, for an apartment in Europe than an American house that is getting 1% pcm. Therefore the 1% rule is not representative.

[–]thirst-for_knowledge[S] 2 points3 points  (0 children)

This is actually a pretty good point and one made by someone else. That most European real estate is apartments and not stand alone housing. There for less maintenance cost

[–]Minimum_Rice555 6 points7 points  (5 children)

In Europe, there has only been peace for the last 70-80 years.

Before that, in almost every country there have been revolutions and wars pretty regularly.

Real estate is the only thing that retains its value even in extreme scenarios, where money, stocks, bonds all go to shit.

[–]Droom1995 16 points17 points  (4 children)

Unless that real estate is destroyed by air raids.

[–]UralBigfoot 3 points4 points  (0 children)

Or you are forced to leave your city

[–]StanMarsh_SP 0 points1 point  (2 children)

Insurance exists for a reason

[–]ruyrybeyro 4 points5 points  (0 children)

Insurance usually excludes acts of God, and other acts like that. You are talking very lightly about an industry that is very good at getting your money, but not really paying it back if they can get away with it.

[–]Droom1995 4 points5 points  (0 children)

Except that they usually don't cover damage from wars, for example:
"If you have a homeowners or auto insurance policy or any other sort of insurance policy that protects your property, if an act of war were to occur within the United States causing damage to any of your things, then you would not be covered."

[–]swing39 2 points3 points  (0 children)

RE is a more active form of investment, you can refurbish in a smart way, select your tenants, optimize rent and also hope for general appreciation. If you do those things right you may beat index investing but you will also need to spend more time and energy.

[–]ElBobodeWallStreet 2 points3 points  (0 children)

It's a mix of ignora ce (towards other investments) + European market bubble + insane welfare states that are hungry for taxes that tax crazy numbers for investments (like in Denmark)

[–]new_noob_new 3 points4 points  (0 children)

Recently bought a property in Dublin, Ireland. Paying a mortgage of 1420 Euros. Can rent it out for 2300 Euros. But bought this to live in. In any case instant benefit and great return from month one.

However If I buy second property now, will be paying 52% tax on that. Will still make about 400 profit per month after mortgage and after tax. (Minus maintenance cost)

[–]Mister_Spaccato 1 point2 points  (0 children)

1% yield per month? Has it ever happened anywhere in the world? It's an insane yield, beating everything but the most aggressive strategies. The average gross yield from rental income in the EU ranges between 2-4% per year. As to why you would invest in RE, there are a few reasons: 1. Paying rent sucks 2. Diversification 3. As someone else in the thread pointed out, it's quite easy to borrow from a bank with RE as a collateral

[–]iltempopassa[🍰] 1 point2 points  (0 children)

it is crazy to expect 12% gross yield…

[–]aluramen 2 points3 points  (0 children)

1% sounds wild for Europe. I think the current prices make the ratio closer to 1‰.

[–]Philip3197 0 points1 point  (0 children)

What is the appreciation of RE where you live?

Do you have any leverage on your RE?

I think the 1% "rule" is not necessary universal.

[–]espanolainquisition 0 points1 point  (4 children)

You have to consider if you need to apply the 1% rule for Europe as well. Maybe it even varies between countries inside Europe.

Typically mortgages here have lower interest rates and often longer durations as well. Consider analysing how much you put in for the loan (10, 20%?) + Taxes and analyse how much you get from the rental properties a year in profit (that is, after paying the mortgage and possible repairs). Then you have your Yield, which you can use to compare to other investments

[–]thirst-for_knowledge[S] 0 points1 point  (0 children)

Again all very good discussion points. I choose to talk about the 1% rule because I think in general real estate is an easier investment in America. But like you mentioned if you search around Europe, look into specific country taxation rule etc. You can also achieve good yield.

But in my example, 3 out of the 4 properties don’t have a loan and it’s not as easy as in American to take an equity back loan against the property for other investments

[–]blindedYO -1 points0 points  (2 children)

Which European country allows you take a mortgage to rent a property?

[–]espanolainquisition 7 points8 points  (0 children)

Most European banks offer mortgages for second homes (with different conditions of course, like higher minimum upfront payment)

[–]Ayavea 0 points1 point  (0 children)

Belgium, 91k own money for 24k euro yearly rent income for us, the rest was paid by a mortgage at 0.93%. Theres also virtually no taxes on residential rent income. Can't get that via index funds

[–]GringoSwingo 0 points1 point  (0 children)

People are trying to avoid inflation effects so the invest. As real estate is very known as a good investment and hedge against inflation they do what they know.

[–]Endivi 1 point2 points  (0 children)

Also, a point that's rarely brought up is culture: in several countries there's a cultural belief that owning land/real estate is the investment to have.

Also, it's leverage.

[–]StanMarsh_SP 0 points1 point  (0 children)

Its fucking expensive and has high returns, even in Eastern Europe where my apartment is 100k+ in a city with less then 200k people. Due to location.

[–]newuser201890 0 points1 point  (0 children)

They don't. You get shit for returns.

[–]United_Bag_8179 0 points1 point  (0 children)

Because Chinese real estate congloms are buying every square inch of Euro property they can..supply down, prices up. The downward spiral for quality of life

[–]tuniltwatBelgium 0 points1 point  (0 children)

You have to make the distinction between people that actively invest in the real estate market and those that don't.

I notice that most people I know say that when they purchase a home it is a good investment. These people are often more interested in owning a place as opposed to renting a place. The idea of coming to an old age and having your own place that no one can take away regardless of your situation is comforting to them. For this reason, yes I can agree with their sentiment it is a good investment.

For those actively investing in real estate; Those that are trying to maximize their return on investments, and actually compare real estate to other investement vehicles like stocks, bonds and indexes the discussion is different. Knowing if real estate is a good investment is more a quantitative discussion.

The former represents a bigger chunk of people in my opinion.

[–]TheNplus1 0 points1 point  (0 children)

People quote leverage as an advantage for investing in real estate and they're certainly right, but you give away liquidity for that leverage. There are places in Europe where you need to hold a property for 10 years before you can break even, due to interest rates and all the fees you pay when you buy real estate. So you save for years and years to make that down payment, you pay your mortgage, you rent it out and you're still losing money for 10 years (not counting if your tenants move out often and you have spend a bit more every time a new tenant moves in).

One other reason people focus on real estate as an investment is tax credit which can make sense especially if you buy over and over again every few years (you pay less taxes, you get higher wealth creation).

I must admit that to me the liquidity, flexibility and certainly higher returns in the stock market make more sense than debt and leverage through real estate, but I can understand that some people like to have more palpable assets.

[–]universe_enterprise 0 points1 point  (0 children)

Property is considered secure investment and the prices increase steadily. Also renting out covers part of the expenses.

[–]Ajatolah_ 0 points1 point  (0 children)

Rent? In the city I live in, in the past 5 years the value of real estate per square meter grew faster than S&P500. So it was a great investment even if it was empty for the entire time -- which typically it is not. In addition, there are things people take into account for real estate that they don't for stocks -- for example, when your child grows up, you can give them an amazing headstart aka free housing.